Lynch v Cadwallader & Anor

On an appeal concerning a proof of debt, the creditor bears the burden of proving its debt on the balance of probabilities. Where liability depends on a personal guarantee, the creditor must prove both the agreed terms of the guarantee and its execution by the debtor or by a person with requisite authority. A reference to a guarantee in a facility offer or to a standard form is insufficient to establish an unlimited guarantee where the agreed discussions contemplated a limited guarantee. Documentary evidence must be assessed with the oral evidence, and inferences must follow logically from established facts. A guarantee is unenforceable under section 4 of the Statute of Frauds 1677 unless the statutory requirements are met.

Mr Lynch appealed against the trustee in bankruptcy’s admission of Aldermore Bank plc’s proof of debt. The Bank relied on an alleged personal guarantee dated 12 September 2011, said to secure finance provided to Mr Lynch’s company, Ruskin Private Hire Ltd.

Mr Lynch denied signing or receiving the guarantee. The alleged witness, Ms Hughes, denied signing or witnessing it. The issues were whether the parties had agreed an unlimited guarantee, whether the guarantee had been provided and executed, whether Ms Hughes had authority to sign it, and whether the Bank’s alternative arguments based on estoppel, written memorandum or res judicata succeeded.

1. Appeal allowed. The Bank failed to prove that it was a creditor of Mr Lynch. The Trustee’s decision to admit the proof of debt was set aside.
2. The Bank bore the burden of proving the debt on the balance of probabilities. The court had to determine whether the claim should be admitted on the evidence before it, rather than merely review the Trustee’s decision: McCarthy v Tann [2015] EWHC 2049 (Ch).
3. The evidence established that the Bank’s representative had agreed that any personal guarantee would be limited in the same or a similar way to Mr Lynch’s existing guarantee to RBS Invoice Finance. The Bank did not make clear in writing that it required an unlimited guarantee. The phrase “standard format” did not establish that requirement.
4. The Bank failed to prove that the guarantee had been conveyed to Mr Lynch, that he had signed it, or that it had been returned to the Bank. The evidence of Mr Lynch and Ms Hughes was preferred to the Bank’s incomplete documentary and witness evidence. The court applied the caution that inferences must be drawn only from established facts.
5. The joint expert’s evidence was relevant but not determinative. The court was required to evaluate it alongside the factual evidence and apply the burden of proof: Coopers Payen v Southampton Container Terminal Ltd [2003] EWCA Civ 1223.
6. The guarantee was not enforceable under section 4 of the Statute of Frauds 1677 because it was not signed by a person with the requisite authority. The offer letters did not constitute a sufficient memorandum binding Mr Lynch to terms he had neither seen nor accepted. Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd [2012] EWCA Civ 265 and Moat Financial Services v Wilkinson [2005] EWCA Civ 1253 were factually distinguishable.
7. The arguments based on res judicata, issue estoppel and estoppel failed. The earlier change-of-carriage proceedings did not decide whether the guarantee was valid. The court relied on Arnold v NatWest Bank Plc [1991] 2 A.C. 93 and PricewaterhouseCoopers v BTI 2014 LLC [2021] EWCA Civ 9.

The appeal was brought against the Trustee in Bankruptcy’s decision to admit Aldermore Bank plc’s proof of debt. The court allowed the appeal and invited the parties to agree an order.